The Bank of Canada left rates steady in its most recent announcement and sees evidence the economic slowdown in late 2018 and early 2019 is ending. Anthony Okolie talks with Derek Burleton, Deputy Chief Economist, TD Bank Group.
- So no surprises, the Bank of Canada left rates unchanged. Derek, what's it about for you today?
- Well, this is about as even-handed as a central banker can get. And they tend to be even-handed. I think on the one hand, the Bank of Canada suggests the economy is picking up after two weak quarters. They say that evidence is accumulating in the housing market. It's stabilizing after the big drop late last year. Oil sector is beginning a recovery. And just broadly, conditions are brightening with the help of improved financial conditions.
On the other side, still worried about trade risks. In fact, they argue that trade risks have intensified. And a couple of weeks ago, of course, we had an escalation in the trade battle between the US and China. That's still squarely on the Bank of Canada's radar as being a key risk. So you kind of net it out. And it's a central bank that's firmly in neutral for the foreseeable future.
- And do you see any changes to your rate forecast going forward?
- No. If anything, this just reinforces. I know that the markets are still forecasting a rate cut. They see the balance of risk tilted towards the bank actually cutting rates for insurance, if some of these downside risks materialize. Analysts, in general, are looking for a rate hike perhaps after the federal election.
I just don't think that those conditions are going to be met. I see the trade risk being prolonged. Even if China and the US reach a deal, there's going to probably be some battling between the US and Europe, or the US and Japan. They're going to shift their focus towards getting an agreement.
So I see this uncertainty being prolonged. And we don't see growth picking up a lot. And I think what's important, the bank is comfortable with the pickup. But it's not exceeding its expectations. And usually, that's a bit of a precursor for rate hikes. So I'm very comfortable with a very steady Bank of Canada through the course of this year into 2020.
- OK, so you see them on the sidelines for the rest of this year?
- Very much.
- And what are some of the risks for the bank's outlook going forward?
- Well, trade is perhaps the number one. I know they just released their financial system review. And that's where they list out all the key risks to the economy and the financial system. The consumer is still a concern, albeit, the risks there have improved. In the statement today, trade policy is the big risk it flags.
And even there, it's nuanced. Because on the one hand, it points to the fact the US dropped the steel and aluminum tariffs. That's a positive development the USMCA provided, it's ratified as a positive development. But that's more than offset by the escalation in China-US trade war.
- And finally, Derek, where do you see the loonie going over the next year?
- Immediate reaction after the statement today, it created some weakness in the loonie. It lost some ground. And I see that being temporary. We actually have the loonie holding fairly flat, much like our interest rate forecasts. We've got it in kind of the 74 to 77 range.
It's always going to wobble around. And provided that we actually do eventually see a deal between the US and China-- and some of these risks, they're still going to remain, as mentioned. But as long as some of the risks come down a bit, I can see the loonie holding for-- maybe even gaining a bit as we move into the second half of this year.
- Derek, thank you very much for your time.
- Thank you.